A couple of years ago, I wrote a series of articles highlighting share ideas for Motley Fool readers from top City stockpickers. These professionals were notable not only for outstanding track records, but also for concentrated, high-conviction portfolios, taking a long-term view of companies and having their own money invested in their own funds.
There have been some big FTSE 100 winners among the highlighted companies: in particular, Lloyds at 23.6p (+216%), ARM Holdings at 506p (+95%) and Carnival at 2,013p (+48%).
However, some of the picks have so far disappointed: notably, Rio Tinto (LSE: RIO) (NYSE: RIO.US) at 3,389p (-15%), BG Group (LSE: BG) (NASDAQOTH: BRGGY.US) at 1,252p (-33%) and Standard Chartered (LSE: STAN) at 1,485p (-36%).
Could these three underperformers now be ready to reward investors?
Rio Tinto
Mining giant Rio Tinto hasn’t done a lot wrong since Sam Walsh took over as chief executive in January 2013. Indeed, the company has made good operational progress, and a focus on generating strong cash flow has seen shareholders rewarded with a series of 15% dividend increases.
However, Rio — like other miners — has faced a macro-climate of weak metals prices. The shares have made no headway against this backdrop. Nevertheless, the company’s management remains “confident of the long-term fundamentals of demand”. Rio trades on 10.9 times 2015 forecast earnings at a recent share price of 2,883p. That looks attractive for long-term investors, with Rio offering a 5% dividend yield as compensation for the wait for a cyclical rise in metals prices and a re-rating of the shares.
BG Group
BG Group proved to be a class act under chief executive Frank Chapman between 2000 and 2012, massively outperforming bigger sector peers Royal Dutch Shell and BP. However, the company somewhat lost its way, in part becoming a victim of its own success.
Chris Finlayson, who succeeded Chapman as chief executive, didn’t last long. Profit warnings and the loss of the Board’s confidence did for Finlayson, and he resigned last April. BG has since pulled off a coup in poaching Helge Lund from energy giant Statoil. Lund will take up his appointment as BG chief exec in March.
Current weak oil and gas prices don’t provide a helpful backdrop for BG, but the company’s valuable assets and Lund’s top-class record, suggest long-term investors could do well from backing the company at a recent lowly share price of 842p.
Standard Chartered
Standard Chartered has some similarities to BG Group in that for a long time the bank outperformed its larger FTSE 100 peers, but has recently somewhat lost its way. With its focus on Asia and emerging markets, Standard Chartered sailed through the financial crisis of 2008/9. It was hard to imagine then that the company would ever rate as low as its tangible book value — which is about where it is today at a share price of 947p.
As a result of challenging conditions in areas of its business — some cyclical; some structural — Standard Chartered is in the process of refreshing its strategy and restructuring the company for a return to long-term, profitable growth. Again, for long-term investors, now could be a good buying opportunity: not only Standard Chartered’s price-to-book value very attractive, but the forecast P/E is a bargain-basement 8.5 and the dividend yield a juicy 5.7%.